Increasing yields and offsetting executive benefit expenses

Situation:

A medical center was seeking to increase yields on assets held in cash, U.S. Treasurys, CDs, and short-term bonds.

 

Action Steps:

Assuming no change in yield, the organization’s existing investment strategy would produce $10,462,213 in total income over the next 10 years and $22,019,004 over the next 20 years.  The CFO wanted to increase the yield on these assets without sacrificing safety or liquidity, so he repositioned the $50 million into specially-designed life insurance policies.

The policy cash value was projected to yield 5% per year. The $50 million in policies will produce $31,444,731 in income to the organization over the next 10 years and $82,664,885 over the next 20 years. The funds were earmarked to offset other employee benefit expenses and supplemental retirement benefit plans.

In addition, the total death benefit of the policies on the lives of the medical center’s key people exceeds $150 million, which may be used to:

  1. Provide a benefit to the employee insureds;
  2. Recover the cost of supplemental retirement benefit plans;
  3.  Fund its charitable foundation; and/or,
  4.  Improve the health of its existing under-funded pension plans.

Unlike investments in bonds and other fixed income assets, as interest rates rise, the yield on these policies will also rise.

 

Results:

The organization was ecstatic to learn that so many important issues could be addressed with such a simple and powerful program, and the results to date have exceeded original projections. They always have the peace of mind knowing that the medical center may access the cash value of these policies, penalty-free, within just a few days.